Tag Archives: capital flight

“Exactly 10 times the $100bn spent on aid and debt write-offs by rich countries is siphoned out of developing countries, with corporations responsible for 60 per cent of that figure through a web of trusts, nominee accounts and the flagrant mispricing of goods to escape tax………

Cracking down on tax havens and the evasion of taxes by some of the world’s biggest companies is seen as the ‘missing link’ in the poverty alleviation agenda.”

This got me thinking, perhaps naively, why it is that rulers (i.e. presidents and their entourage, most of whom fuel capital flight) in the Global South cannot secure their own property rights.

It makes sense that Mobutu and Co. (perhaps the worst pilferers ever) did not invest in Zaire (presently the moribund DRC) and so siphoned (or allowed allied firms to do so) billions abroad because the country lacked attractive investment options, mostly because of weak property rights. But it is also true that throughout his over three decades in power he and his buddies were perhaps the best placed Zaireans to secure their own property rights. Why didn’t they do it?

The quick answer might be that they had a very limited subjective time horizon and lived in constant fear of coups.

Most of the arguments out there stop here. Time horizon is king. Limited time horizons are bad for long-term investment. Yada yada yada.

But shouldn’t we also expect that after say 10 years in power a leader or elite group updates and realizes that may be they are there to stay, and start laying the foundation for local use of stolen wealth? Some certainly have – Kenya’s Moi and his henchmen come to mind.

The reasons for these leaders to invest locally are legion. The state of the roads, hospitals (think of say Ugandan elites who have to fly to Kenya or South Africa for medical care), insecurity (in Kenya MPs have been attacked by armed robbers), schools, etc etc in these places make it such that an average person in say Palo Alto enjoys a much higher standard of living than some of the wealthier people in the Global South.

What is the point of living in Kinshasa with billions in Europe, and with only one life to live? At what point does it make sense to use some of the money to improve the living standards (even in the most selfish way) in the place where one actually lives?

At the very least, don’t these guys mind the very dusty roads to their residences?

PS: The local use of wealth is, of course, relative. Even Chinese leaders, despite their massive domestic investments, still stash money abroad where property rights are more secure.

Forget (almost) everything else. The trouble with African economies is simply and squarely the lack of property rights protection. It still beats me why the African political elite have failed at instituting even intra-elite property rights protection. The fact that the African political elite – who also happen to be the wealthiest people on the Continent – cannot invest in their own countries has resulted in massive capital flight. The quote below says it all.

Speaking at the New Partnership for African Development (NEPAD) meeting in Abuja, Nigeria, in December 2003, the former British secretary of state for international development, Lynda Chalker, noted that 40 percent of the wealth created in Africa is invested outside the continent.

And this is only what gets counted. Although obviously the upper bound, recent revelations of Mubarak’s wealth (between 20 -70 billion) may be an indication of the amount of personal wealth stashed overseas by long time autocrats like oil-rich Angola’s Edwardo do Santos, Equatorial Guinea’s Obiang’ and Sudan’s Bashir, among others.

The contrast is that:

In corrupt societies in Asia, such as Indonesia, Bangladesh and Pakistan the citizens still prosper because the corrupt elite keep their money at home. They invest in new mobile phone network, build private hospitals and tourist hotels (here).

In short, elite political instability and distrust in Africa is one of the key reasons why the region remains poorer than any other in the world.

WASHINGTON (Reuters) - Israeli Prime Minister Benjamin Netanyahu warned U.S. President Barack Obama on Tuesday against accepting a nuclear deal with Iran that would be a "countdown to a potential nuclear nightmare" by a country that "will always be an enemy of America".

KIEV/DONETSK, Ukraine (Reuters) - Three Ukrainian servicemen were killed and nine wounded as pro-Russian rebels shelled government positions despite a ceasefire deal, the military said on Tuesday, announcing Kiev's highest casualty toll in several days.

GENEVA (Reuters) - A United Nations envoy called on Israel on Tuesday to investigate the killing of more than 1,500 Palestinian civilians, one third of them children, during the 2014 Gaza war, and to make the findings public.